EXPLANATORY STATEMENT
Safety, Rehabilitation and Compensation Act 1988
Issued by the Acting Minister for Employment
Safety, Rehabilitation and Compensation
(Weekly Interest on the Lump Sum) Notice 2015
The purpose of this instrument is for the Minister to specify, pursuant to subsection 21(5) of the Safety, Rehabilitation and Compensation Act 1988 (SRC Act), the rate of weekly interest deemed to accrue on the (superannuation) lump sum of retired employees in receipt of compensation. That rate is then used in a statutory formula to calculate the incapacity benefits payable under sections 21 or 21A of the SRC Act. As the rate can only be specified for a 12 month period, a new rate needs to be specified each year.
Section 21 of the SRC Act applies when the injured employee has received a lump sum benefit. Section 21A of the SRC Act applies when the injured employee has received both a lump sum benefit and superannuation pension. In both cases, the weekly amount of the incapacity benefit is reduced by the weekly interest on the lump sum.
The weekly interest amount is calculated by multiplying the value of the lump sum benefit by the interest rate specified by the Minister, under subsection 21(5) of the SRC Act, and dividing the result by 52.
This rate has been derived by obtaining the daily 10 year Government Bond rates from the Reserve Bank of Australia, averaging them for the period 1 April 2014 to 31 March 2015 and rounding to two decimal places. Over this period the average 10 year Government Bond rate has been calculated to be 3.26 per cent.
Therefore the instrument specifies a rate of 3.26 per cent for the period 1 July 2015 to 30 June 2016.
The rate specified for the period 1 July 2014 to 30 June 2015 was 3.86 per cent.
Consultation
This instrument is a Legislative Instrument for the purposes of the Legislative Instruments Act 2003. Consultation was not undertaken in relation to this instrument.
Routine specification of the interest rate to be applied on the (superannuation) lump sum of retired employees has been determined in accordance with a well-established method, the Government Bond rates, for a number of years. This method of calculating the weekly interest rate has not changed. Given that this instrument is of a minor or machinery nature and does not alter existing arrangements, consultation was unnecessary as per section 18 of the Legislative Instruments Act 2003.
Regulation Impact Statement
The Office of Best Practice Regulation has advised that no Regulation Impact Statement is required (OBPR ID 17055).
Statement of Compatibility with Human Rights
This instrument is compatible with the human rights and freedoms recognised or declared by the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. A Statement of Compatibility with Human Rights follows.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Safety, Rehabilitation and Compensation
(Weekly Interest on the Lump Sum) Notice 2015
This Legislative Instrument is compatible with the human rights and freedoms recognised or declared by the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the Legislative Instrument
The purpose of this Legislative Instrument is to specify the annual rate of weekly interest deemed to accrue on the (superannuation) lump sum of retired employees that are in receipt of compensation under the Safety, Rehabilitation and Compensation Act 1988 (SRC Act).
Section 21 of the SRC Act applies when the injured employee has received a lump sum benefit. Section 21A of the SRC Act applies when the injured employee has received both a lump sum benefit and superannuation pension. In both cases, the weekly amount of the incapacity benefit is reduced by the weekly interest on the lump sum.
The weekly interest amount is calculated by multiplying the value of the lump sum benefit by the interest rate specified by the Minister, under subsection 21(5) of the SRC Act, and dividing the result by 52.
This rate has been derived by obtaining the daily 10 year Government Bond rates from the Reserve Bank of Australia, averaging them for the period 1 April 2014 to 31 March 2015 and rounding to two decimal places. Over this period the average 10 year Government Bond rate has been calculated to be 3.26 per cent.
Therefore the instrument specifies a rate of 3.26 per cent for the period 1 July 2015 to 30 June 2016.
The rate specified for the period 1 July 2014 to 30 June 2015 was 3.86 per cent.
Human rights implications
Article 9 of the International Covenant on Economic, Social and Cultural Rights provides for the right of everyone to social security, including social insurance. General Comment 19 by the Committee on Economic, Social and Cultural Rights elaborates on Article 9, stating that the ‘States parties should … ensure the protection of workers who are injured in the course of employment or other productive work’.[1]
Workers’ compensation is analogous to social insurance in that it provides payment of wages and medical costs to employees for injuries occurring as a result of their employment.
This Legislative Instrument, specifying the weekly interest rate on the (superannuation) lump sum of retired employees in receipt of compensation under the SRC Act, is mechanical in nature.
Subsections 21(3) and 21A(3) of the SRC Act provide that an employee who is in receipt of a superannuation lump sum benefit compensation is to be reduced, in part, by the weekly interest on that lump sum. Subsection 21(5) of the SRC Act provides that the rate of the weekly interest on the lump sum is to be determined annually by the Minister.
This Legislative Instrument merely sets out the rate, as required by the SRC Act, for the upcoming 12 month period.
The calculation of the rate of the weekly interest on the lump sum has been determined in accordance with a well-established method, the Government Bond rates. This method has been used to determine the rate of the weekly interest on the lump sum for the purposes of subsection 21(5) of the SRC Act for the past eight years and is considered to conservatively reflect interest rates able to be earned on long term investments.
When this method of calculation results in a rate that is higher than the previous rate, an employee receiving workers’ compensation payments under section 21 or 21A may see their level of payment decrease from the previous year. This reduction, should, however, be offset by an increase in interest the employee can earn on their superannuation lump sum. This decrease may represent a slight limitation on their right to social security, but it is necessary for the workers’ compensation scheme as established by the SRC Act to respond to external economic factors, in order for the scheme to remain financially viable.
To the extent that this Legislative Instrument limits the right to social security, those limitations are necessary, reasonable and proportionate to the objectives of the instrument.
Conclusion
This Legislative Instrument is compatible with human rights as it seeks to set a rate of interest, as required by the SRC Act. Where the setting of that rate of interest results in a decreased payment to employees receiving workers’ compensation payments, to the extent that it may limit the rights of those employees, those limitations are reasonable, necessary and proportionate to the legitimate objective of maintaining a fair and financially viable workers’ compensation scheme.
Christopher Pyne
Acting Minister for Employment
[1] Committee on Economic, Social and Cultural Rights, General Comment 19: The Right to Social Security (art. 9), U.N. Doc E/C.12/GC/19 (2008), [17].